The S&P 500 made a new all-time closing high Friday, and the Dow Jones Industrial Average and Nasdaq closed in the black. But low volume signaled a lack of enthusiasm with Friday marking the lowest volume of the year.

The sluggish response is attributed to lower earnings from a weather-beaten retail sector. But existing home sales rose 1.3% in April, and sales of new single-family home were up 6.4%.

At Friday’s close, the Dow Jones Industrial Average rose 63 points to 16,606, the S&P 500 gained 8 points at 1,901, and the Nasdaq was up 31 points at 4,186. The NYSE’s primary market traded a mere 554 million shares with total volume of 2.4 billion shares, and the Nasdaq crossed 1.5 billion shares. On both exchanges, advancers outpaced decliners by about 2.5-to-1.

The CBOE Volatility Index (VIX) fell to its lowest level in over a year. We are now at levels seen when the S&P 500 topped in 2007, which led to an 18-month bear market. This shows a lack of fear in the market and that investors expect limited price swings in the S&P 500.

Last week, Federal Reserve Governor of New York William Dudley warned that the low volatility “makes me a little nervous” because it could lead to a surprise sell-off. But the American Association of Individual Investors’ (AAII) latest survey found that investors have been neutral on stocks for the longest period in 15 years. Since the AAII survey is a contrary indicator this is bullish.

With fear low and earnings estimates for the third and fourth quarter improving, the Dow Jones Transportation Average continues to lead the other indices. Early in April, the index broke to a new angle of advance, helped by airline earnings. In a new sign of the strength of their competitive position, airlines are boosting fares.

Conclusion: The month of May has been decidedly sluggish with average volume lower than any month in the past year. Nevertheless, the technical picture is bullish as the big-cap indices continue to make new highs.

As long as the S&P 500’s major support line at 1,850 holds, we should buy on pullbacks. But limit buying to stocks that are clear outperformers in their sector and can be bought at or below the average price-to-earnings ratio of their sector. At current levels there is little to be gained by “reaching” for riskier stocks.